Irrevocable Life Insurance: Understanding The Unchangeable Policy

An irrevocable life insurance trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden and the impact of taxes on your estate after your death. It does this by transferring assets from you to a trust, which holds one or more life insurance policies. This type of trust has been a staple of estate planning, helping individuals, families and business owners meet a range of goals.

Irrevocable Life Insurance Trust (ILIT)

An Irrevocable Life Insurance Trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden as well as the impact taxes will have on your estate. It does this by transferring assets from one party (you) to another (the trust) and uses a life insurance policy to efficiently distribute the proceeds when you pass away.

ILITs are also used to manage and distribute the proceeds that are paid out upon the insured’s death. The parties in an ILIT are the grantor, trustees, and beneficiaries. The grantor typically creates and funds the ILIT. Gifts or transfers made to the ILIT are permanent. The trustee manages the ILIT, and the beneficiaries receive distributions.

ILITs allow you to leverage the annual gift tax exclusion by using gifts to pay premiums on the life insurance in the trust. Irrevocable Life Insurance Trusts, or ILITs, have long been a staple of estate planning, helping individuals, families and business owners meet a wide range of goals.

Since it's irrevocable, it generally cannot be altered or undone after it's created.

How irrevocable life insurance can help cover estate taxes and other expenses after death

An irrevocable life insurance trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden as well as the impact taxes will have on your estate. It does this by transferring assets from one party (you) to another (the trust) and uses a life insurance policy to efficiently distribute the proceeds when you pass away.

ILITs are also used to manage and distribute the proceeds that are paid out upon the insured’s death. The parties in an ILIT are the grantor, trustees, and beneficiaries. The grantor typically creates and funds the ILIT. Gifts or transfers made to the ILIT are permanent. The trustee manages the ILIT, and the beneficiaries receive distributions.

Funding a trust with life insurance can help cover estate taxes and other expenses after death, preventing the need to sell high-value assets. ILITs allow you to leverage the annual gift tax exclusion by using gifts to pay premiums on the life insurance in the trust.

ILITs have long been a staple of estate planning, helping individuals, families and business owners meet a wide range of goals. However, after the 2017 Tax Cuts and Jobs Act (TCJA) raised the federal estate-tax exemption limits (now $13.61 million per person and $27.22 million per couple), some people wondered whether an ILIT still made sense. Under current estate tax laws, only the wealthiest Americans will benefit from setting up this kind of trust. That may change, however, in the coming years. The estate tax exemption limits are scheduled to be cut by more than half in 2025, so more people may benefit from ILITs in the future.

How irrevocable life insurance can help minimise your current tax burden

An irrevocable life insurance trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden as well as the impact taxes will have on your estate. It does this by transferring assets from you to the trust, which uses a life insurance policy to distribute the proceeds when you pass away.

ILITs can be used to minimise estate taxes, avoid gift taxes, protect government benefits, and more. They are irrevocable, meaning they generally cannot be altered or undone after they are created.

ILITs allow you to leverage the annual gift tax exclusion by using gifts to pay premiums on the life insurance in the trust. This can be an effective way to minimise your current tax burden, as the gifts or transfers made to the ILIT are permanent.

Additionally, an ILIT can help cover estate taxes and other expenses after death, preventing the need to sell high-value assets. This can be especially beneficial for individuals, families, and business owners who are looking to meet a wide range of goals through estate planning.

How irrevocable life insurance can help protect government benefits

An Irrevocable Life Insurance Trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden and the impact of taxes on your estate. It does this by transferring assets from one party (you) to another (the trust) and uses a life insurance policy to distribute the proceeds when you pass away.

ILITs can be used to protect government benefits. They are created to own and control a term or permanent life insurance policy or policies while the insured is alive. The trust can also manage and distribute the proceeds that are paid out upon the insured’s death, according to the insured's wishes.

ILITs are irrevocable, meaning they generally cannot be altered or undone after they are created. This means that the benefits stemming from a life insurance policy are protected from estate taxes.

ILITs allow you to leverage the annual gift tax exclusion by using gifts to pay premiums on the life insurance in the trust. They have long been a staple of estate planning, helping individuals, families and business owners meet a wide range of goals.

How irrevocable life insurance can help avoid gift taxes

An Irrevocable Life Insurance Trust (ILIT) is a legal arrangement that seeks to minimise your current tax burden as well as the impact taxes will have on your estate. It does this by transferring assets from one party (you) to another (the trust) and uses a life insurance policy to efficiently distribute the proceeds when you pass away.

ILITs are also used to manage and distribute the proceeds that are paid out upon the insured’s death. The parties in an ILIT are the grantor, trustees, and beneficiaries. The grantor typically creates and funds the ILIT. Gifts or transfers made to the ILIT are permanent. The trustee manages the ILIT, and the beneficiaries receive distributions.

Funding a trust with life insurance can help cover estate taxes and other expenses after death, preventing the need to sell high-value assets. ILITs allow you to leverage the annual gift tax exclusion by using gifts to pay premiums on the life insurance in the trust.

Since it's irrevocable, it generally cannot be altered or undone after it's created.

Frequently asked questions